Post on 28-Jan-2023
Journal of Business Researc
Primary influences of environmental uncertainty on promotions
budget allocation and performance: A cross-country
study of retail advertisers
Kim-Shyan Fama,*, Zhilin Yangb,1
aDepartment of Marketing, University of Otago, PO Box 56, Dunedin, New ZealandbDepartment of Marketing, City University of Hong Kong, 83 Tat Chee Avenue, Kowloon, Hong Kong SAR
Received 30 June 2004; received in revised form 31 January 2005; accepted 31 March 2005
Abstract
Planning ahead has numerous benefits, but many small retailers do not seem to engage regularly in marketing planning. Researchers often
document lack of planning expertise. This study attempts to examine whether retailers undertake planning when faced with an uncertain
environment. Specifically, our study examines whether small retailers will switch from in-store promotion to outdoor advertising where the
latter has mass audience reach capability and hence the potential to increase market share. The results show mixed financial performance. The
study concludes by discussing the implications of the results for small retailers.
D 2005 Elsevier Inc. All rights reserved.
Keywords: Environment; Uncertainty; In-store promotion; Outdoor promotion; Budget allocation; Performance
1. Introduction
Today’s businesses are increasingly fraught with
environmental complexity, turbulence and uncertainty.
Scanning and interpreting environmental changes are
usually the initial steps in strategic formulation and
implementation (Hambrick, 1981; Hofer and Schendel,
1978). The environment–strategy–performance paradigm
advances that a fit between environment characteristic and
strategic orientation tends to result in superior perform-
ance (Miles and Snow, 1978; Venkatraman and Prescott,
1990). In light of these considerations, the essential
question for retailers in an uncertain environment is:
What strategies should be adopted to maximize their
profit? This study intends to address three research issues.
Investigated first is the effect of small retailers’ perception
of environmental uncertainty on preference for in-store
0148-2963/$ - see front matter D 2005 Elsevier Inc. All rights reserved.
doi:10.1016/j.jbusres.2005.03.010
* Corresponding author. Tel.: +64 3 479 7692; fax: +64 3 479 8172.
E-mail addresses: kimfam@business.otago.ac.nz (K.-S. Fam),
mkzyang@cityu.edu.hk (Z. Yang).1 Tel.: +852 2784 4644; fax: +852 2788 9146.
versus outdoor promotional tools and allocation of
promotional budgets. Next, the study will examine the
impact of promotional budget allocation on retailers’
market performance and, finally, the moderating role of
environmental uncertainty in the relationships between
promotional budget allocation and market performance
will be addressed through a hierarchical moderating
regression analysis.
2. Conceptual background
Based on the environment–strategy–performance para-
digm, we developed a conceptual framework (see Fig. 1),
which mainly links business uncertainty with promotion
mix appropriation and firm performance. This model is a
further extension of that provided by Low and Mohr (1992,
1998), Piercy (1986) and Lilien and Weinstein (1984). The
figure shows that promotion budget allocation decisions
could be influenced by retailers’ perceptions of the environ-
ment. However, this inference is untested and becomes the
key research question in this paper.
h 59 (2006) 259 – 267
Environmental Uncertainty
Promotion Budget
AllocationPerformance
Control Variables
Fig. 1. Conceptual model.
K.-S. Fam, Z. Yang / Journal of Business Research 59 (2006) 259–267260
2.1. In-store versus outdoor promotion appropriation
According to resource-based theory, a retailer’s compet-
itive advantage comes from its resources and capacities
(Grant, 1996). In this sense, retailers strive for efficient
allocation of promotional tools to achieve maximum results
since their promotional budget is a critical resource. The
primary tools of promotions include advertising (print and
broadcast advertising), direct mail, coupons and vouchers,
in-store displays, public relations and personal selling.
Advertisers tend to utilize various promotional tools to help
consumers become aware of available products and services,
to attract new customers, and to increase sales and market
share. A number of authors (see Van Auken et al., 1992;
Vaccaro and Kassaye, 1990) claim that small retailers tend to
place greater emphasis on below-the-line promotions (direct
marketing, in-store and sales promotion) than above-the-line
promotions (traditional mass media such as television, radio
and print). Limited budgets and expertise of small businesses
are often the main reasons given for the emphasis on below-
the-line promotions. For small businesses, in general,
budgetary constraints and lack of time and expertise may
lead to limited and often ad hoc or irrational promotion
decisions. One is left with the impression that small business
promotion decisions are far from strategic in nature. Never-
theless, in a dynamic marketing environment, quite often
retailers encounter changing consumer tastes, demands and
preferences and shifting competitive modes. Under this
scenario, opportunistic retailers are more likely to focus on
taking advantage of the changes in the environment. One of
the marketing activities the small businesses could undertake
is to communicate their store, products, and services to the
consumers. The question is to what extent does environ-
mental uncertainty influence small businesses’ decision on
choice of promotional tools (i.e., in-store versus outdoor),
budget allocation and market performance.
In-store promotion refers to personal selling, price mark-
downs (or price promotions as identified by Moreau et al.,
2001) and in-store displays. In contrast, outdoor promotion
refers to promotional tools, such as print and broadcast
advertising, direct mails, give-away coupons and vouchers,
public relations and sponsorships. Personal selling is
regarded as an important promotional tool in the promotion
literature due to the fact that the appearance of salespersons,
knowledge of products and friendliness are equally effective
compared to other promotion tools available when commu-
nicating information regarding a firm and its products and
services. According to Fam and Merrilees (1998), ‘‘sales-
persons can be used to convince the consumers that the more
expensive products possess attributes which justify their
premium prices’’ (pp. 248). In the case of smaller retailers,
where the very nature of being a small business often
precludes them from being able to match the cheaper
product or service offerings of larger firms (Smith and
Sparks, 2000), the use of personal selling in this way is even
more important to the success of the business. For the
purpose of this study, this ubiquitous tool will not be
included in our definition of in-store promotion. The
primary reason is that personal selling is a part of any
business whether there is any promotion undertaken or not.
Including personal selling in our study where environmental
uncertainty could be a potential driver of budget allocation
will simply blur the outcome of our study. Price markdown
is a promotion tool per se. Retailers can easily cross-out the
regular price and discount the price by a certain percentage
without incurring any expenses or loss as the regular price
always carries a mark-up. Similarly the use of dump bins,
buntings, posters and end-of-aisles are in-store displays
which can be quickly and efficiently used to attract
customers without having to incur much expense relative
to some outdoor media like print, broadcast or direct mail
which are usually more expensive and time-consuming to
set up. For instance, to advertise in print media, a retailer
needs to arrange a photo shoot, buy media space and select
the most appropriate day to advertise.
Outdoor advertising constitutes a communication activity
that draws customers to the store. This strategy constitutes
more of an Foutside in_ approach to attract potential
customers to a particular retail store. Unlike in-store
promotion, which is rather limited to walk-in customers,
outdoor advertising (including newspapers, magazines,
television and radio) has the ability to reach all segments
of the population. Additionally, a specific target audience
can be reached if retailers select a local newspaper or
K.-S. Fam, Z. Yang / Journal of Business Research 59 (2006) 259–267 261
magazine, or a regional television or radio station. To
communicate with their customers, retailers often use direct
mail materials, like leaflets and brochures. These materials
are often dropped into the target audiences’ letterbox or
delivered as an insertion in a local newspaper or magazine.
Other forms of outdoor advertising include coupons,
vouchers, public relations and sponsorships. According to
Nair and Tarasewich (2003) sales promotion tools like
coupons and vouchers are often mailed to potential
customers with the objective of accelerating the number of
shopping trips to the store. These tools can also be used to
trigger unplanned purchases (Inman et al., 1990). Public
relations activities, such as scheduling seminars, press
releases and charity sponsorships are low-key communica-
tion activities that a retailer can undertake within his or her
local community. The purpose is to forge a better relation-
ship with local consumers in the hope that the latter will
patronize local small businesses.
3. Development of hypotheses
3.1. Small businesses and choice of promotion tools
The literature on small businesses generally characterizes
the industry as having a lack of marketing expertise,
personalised management, and small budgets. Scholhammer
and Kuriloff (1979) originally proposed that a personalised
management style was a distinguishing feature of small
businesses. Basically, if the personalised characteristics of
the owner/manager are the dominant internal management
influence, then marketing management of a small business
will be very much affected by the competency and attitudes
towards marketing held by the owner (Kotley and Meredith,
1997; Stokes, 1998). Hence, if the owner/manager’s attitude
toward a particular promotional tool is favourable, then
preference will be given, over other options, to that particular
tool. From the budget point of view, limited resource
capacity significantly impacts the marketing performance
of small businesses, as marketing exercises and expenses
tend to have lesser priority over such elements as lease
payments, stock purchases or staff training. A stand-alone
small business has less to spend on marketing as a percentage
of income because of the impact of fixed costs, which take up
a higher proportion of revenues. Such financial constraints
also restrict their ability to employ marketing specialists
(Stokes, 1998). Harmeson and Elbert (1996) highlighted the
issue of insufficient specialty marketing expertise, often
equating to a lack of knowledge in appropriate advertising
appeals and effective media planning. Advertising cam-
paigns seem to be run on Fgut instinct_, as this is the only
affordable option. Given the relatively constrained budgets
and marketing expertise a small business owner/manager
faces, simple reason logically indicates that, ceteris paribus,
these small businesses would choose in-store promotional
tools such as price markdown and in-store displays over
outdoor advertising. Rationality in this context takes into
account the growing importance of in-store consumer
decision making, where up to 70% of purchase decisions
are now made in store (Connolly and Davidson, 1996; Fam
and Merrilees, 1998), taking advantage of the relatively
inexpensive and easily staged price markdowns and in-store
displays. Based on the above inference, we hypothesize that:
H1. Small businesses will allocate more advertising and
promotion budget to in-store promotion than to outdoor
advertising.
3.2. Environmental uncertainty, budget allocation and
change in market share
According to the environment–strategy–performance
paradigm, a fit between environment characteristic and
strategic orientation will lead to superior performance (Miles
and Snow, 1978; Venkatraman and Prescott, 1990). Environ-
mental uncertainty is one major aspect of environmental
characteristics (Dess and Beard, 1984). The literature
purports that in a relatively unstable environment, firms
must respond to changing competitive pressures that will
have an effect on the way that they conduct their business
(Simerly and Li, 2000). Paine and Anderson (1977) and
Miles and Snow (1978) observed that managers who
perceived themselves to be in a more turbulent environment
tended to assume greater risks and employ more innovative
strategies than managers who perceived themselves to be in
a more stable environment. However, any change in stra-
tegies will depend on the size of the organisation. According
to Verhees (1998), small businesses have an inherent
problem of being unable to undertake time-consuming and
costly market research in order to predict changes in the
environment. Nevertheless, they have a distinct advantage
over larger competitors in the sense that being small is likely
to be more responsive, and, in turn, flexible to the envi-
ronment (Dean et al., 1998). With respect to these findings,
a link between perceived environmental uncertainty and
short-term ad hoc planning can be discerned. This leads to
the idea that, if a retailer perceives its retail environment to
be uncertain, the retailer’s response will be to employ a
promotional strategy that will capture as many sales as
possible. West and Berthon (1997) claim that retailers’
uncertainty avoidance or risk taking has a significant impact
upon advertising and promotion budget decisions.
In an uncertain environment, consumers’ tastes and
preferences and competitors’ modes of competition will
undergo constant fluctuation and these changes will have an
effect on the retailers’ propensity toward change. Miller and
Friesen (1982) claim that the more dynamic and hostile the
environment, the greater the need for innovation and the
more likely it is that firms will be innovative. This claim
was also echoed by Dutton and Jackson (1987) and Johnson
(1992) as these authors believed that if the retailers did not
undertake any action, the changes in tastes, preferences and
K.-S. Fam, Z. Yang / Journal of Business Research 59 (2006) 259–267262
competitive interactions would give the retailers a feeling of
uncontrollability of the environment, potentially resulting in
subsequent loss of market share. Managerially speaking, in
an uncertain environment, the retailers should be more
focused in their promotion activities. According to Fam
(2003), successful retailers in an uncertain environment will
pay more attention to movement of stocks and, to achieve
this promotion objective, these retailers will ‘‘concentrate on
carefully planning the promotion, co-ordinating all the
media used in the most effective manner and using print
media as a means of support for the promotion campaign’’
(p. 290). Seemingly, then, a retailer’s preference for a
particular promotion tool hinges on how he/she perceives
the environment. Recalling the differences in the commu-
nicative capabilities of in-store promotion versus outdoor
advertising, one would assume that in an uncertain environ-
ment the retailers are more likely to employ outdoor
advertising over in-store promotion. Outdoor advertising
has the capability to reach, inform and entice mass
audiences, as opposed to in-store promotion. Hence, in an
uncertain environment as rivalries among retailers heat up,
what better strategy exists than to enlarge the market share
pie by reaching and pulling in a secondary target audience.
By reaching out to the mass audience, retailers are more
likely to capture additional sales than to compete among
themselves using in-store promotion for a share of the
primary target audience. From the small businesses’ point of
view, switching from an in-store promotion to an outdoor
advertising strategy merely represents a tactic to arrest
declining sales. However, contingency theory holds that
interaction between strategy and environment will influence
firm performance (Duncan, 1972; Miller, 1988; Miller and
Friesen, 1983). Hence, if a retailer uses the appropriate
promotion strategy in an uncertain environment, the out-
come of the decision, plausibly, will be positive. Based on
the above inference, we propose the following hypotheses:
H2. Environmental uncertainty has a more significant
positive effect on budget allocation to outdoor advertising
than to in-store promotion.
H3. Outdoor advertising will have a more significant
positive effect on market share change than will in-store
promotion.
H4. When environmental uncertainty is increasing, allocat-
ing more advertising and promotion budget to outdoor
advertising will lead to a significant positive change in
market share.
4. Methods
4.1. Participants and data collection
We selected two countries, New Zealand and Portugal, as
our target countries. We chose these two countries because
they are both advanced countries where population frames
are easily identified and accessed. The target populations for
this study were small clothing and shoe retailers as they are
important contributors to the economies of New Zealand
(Statistics NZ, 2000a,b) and Portugal (Ministerio da
Industria, 1999). Small, independent retailers were defined
as retailers with between one and five outlets and less than
10 employees (Smith and Sparks, 2000). In addition, the
clothing and shoe retail outlets tend to restrict their lines of
merchandise in order to guarantee some assurances of
uniformity of merchandise among the outlets. Small and
independent retailers were chosen because they are likely to
exercise more discretion in determining promotional activ-
ities. Small retailers are also said to be more innovative in
their marketing practices than larger firms (Dean et al.,
1998). The study participants were the managers of retail
stores, because these people are usually gatekeepers of the
choice of promotion tools that a retail store will employ. The
sampling frame for the New Zealand data set was Yellow
Page lists of clothing and shoe retail stores while the
sampling frame for Portugal was the most recent Retailers
Union and Franchising Institute Directory. The Portuguese
questionnaire set was translated into Portuguese by a native
speaker. The questionnaire was pre-tested before being sent
to the respondents. The effective response rates were 29%
(n =213) and 73% (n =124) for New Zealand and Portugal,
respectively.
4.2. Measures
4.2.1. Promotion tools and budget allocation
A total of eight promotional tools were identified. These
tools are commonly used by small retailers to promote their
products and services (see Smith and Sparks, 2000; Vaccaro
and Kassaye, 1990; Van Auken et al., 1992). Retailers were
requested to state the amount they allocated to each of the
eight promotional tools relative to spending on personal
selling. More specifically, we first set the base of personal
selling budget as 100%; then asked respondents to compare
the budget spent on any of the other eight tools relative to
that of personal selling. Three major reasons motivated us to
adopt this method. First, personal selling is necessary and is
the most important promotional tool, occupying the majority
of promotion budgets for small retailers (Abratt and Anley,
1994; Levy and Weitz, 1992). Second, because retailers are
usually very sensitive to budget information, they would feel
more comfortable in filling in the relative weights rather than
a straight number. From this perspective, we might obtain a
relatively accurate estimation. Finally, this method addresses
the variation in labour costs between New Zealand and
Portugal, as the costs of the other eight promotion tools are
compared relative to the country’s labour cost.
4.2.2. Environmental uncertainty
Environmental uncertainty is defined as the degree to
which perceived instability of environments related to a
K.-S. Fam, Z. Yang / Journal of Business Research 59 (2006) 259–267 263
firm’s business (Duncan, 1972; Tan and Li, 1996). In this
study, the five-item scale of environment uncertainty was
adapted from Miller and Friesen (1982). Respondents were
asked to rate their perceived uncertainty of the following
five items: (1) customers’ buying habits, (2) nature of
competition, (3) taste and preference of customers, (4)
market activities of competitors, and (5) legal, political and
economic constraints. Each statement was measured with a
7-point numerical scale (Likert scale) with endpoints
labelled as 1=strongly disagree to 7=strongly agree. To
examine the reliability and validity of the scale, we
performed a CFA of the one factor model by using LISREL
8. The last item was deleted because of cross-loading. The
reliability and validity of the scale were evidenced by such
key psychometric properties as Cronbach’s alpha (0.81 and
0.76 for New Zealand and Portugal, respectively), average
variance extracted (0.61 and 0.56), and composite reliability
(0.78 and 0.75). The remaining four items were further
examined by multi-sample analysis; they proved to be an
adequate model fit (v2 = 4.64, df =1, RMSR=0.034,
CFI=0.98, GFI=0.99 for New Zealand; v2=7.52, df =2,RMSR=0.046, CFI=0.96, GFI=0.97 for Portugal).
4.2.3. Performance and control variables
Measuring promotion effectiveness proved difficult.
Nevertheless, we adopted market share change to measure
the retailers’ performance index because market share has
been widely accepted as a valid predictor of business
performance (see Jacobson, 1988; Prescott et al., 1986;
Montgomery and Wernerfelt, 1991).
Retailers were asked to indicate the extent to which their
market share changed relative to their countrywide com-
petitors in the past 12 months. Countrywide sales volume is
often compiled by the respective industry and retailers
usually have easy access to these data. The mean of market
share change as reported by the retailers was 4.27%
(S.D.=1.43) and 4.5% (S.D.=1.47) for Portugal and New
Zealand, respectively. The difference was not statistically
significant. The inter-correlations among study constructs
ranged from �0.16 to 0.53 for the New Zealand sample and
from �0.30 to 0.57 for the Portugal sample.
Three control variables were included in the regression
analysis. The chain store (six or more outlets under one
brand name) variable is included because if an organization
has several outlets under one brand name, mass media are
likely to be utilized given the lower unit cost as opposed to
in-store promotion, which is normally performed on a per
outlet basis. The shoe category variable is intended to gauge
whether differences are apparent in budget allocations
between shoe and clothing retailers. The third control
variable relates to number of employees. Although Burnett
(1993) claims that two budgets exist, one for hiring of staff
and the other for advertising and promotion, we included
this variable as it is possible that, as staff costs increase, the
amount to be spent on advertising and promotion will
decrease.
5. Results
5.1. Sample profile and perception of the environment
The study participants were managers of retail stores,
because these people (in a smaller store environment)
usually have the final say in the choice of promotion tools
that a retail store will employ. For the New Zealand sample,
the majority of our respondents were independent clothing
retailers (74%) with an average of 5 employees per outlet.
The remaining 26% were chain store (six outlets or more
under one brand name) retailers. The Portuguese sample
contained 90% independent clothing retailers and 10%
chain store retailers. They employed an average of 4
employees per outlet. The retailers in New Zealand and
Portugal gave their environment a mean score of 5.3 and 4.5
out of a possible score of 7 (with 7 being very uncertain),
respectively. The difference is statistically significant at the
0.05 level. We viewed these scores as a good indication of
the uncertain environment faced by the retailers as we
believed any score above the neutral point (3.5 for our scale)
indicates that the retailers experienced some changes in the
consumers’ tastes and preferences, as well as in competitors’
activities.
6. Hypothesis test
6.1. Hypothesis 1
Our first hypothesis states that small businesses will
allocate more advertising and promotion budget to in-store
promotion than to outdoor advertising. The results show
New Zealand retailers allocated 60.4% of the total advertis-
ing and promotion budget to in-store promotion compared
to 40% for outdoor advertising. In Portugal, a higher
percentage (74.8%) was allocated to in-store promotion as
opposed to 25% for outdoor advertising. Hence, H1 is
supported.
6.2. Hypothesis 2
Table 1 summarizes the result of H2. For each regression
analysis, we examined multicollinearity by computing the
variance inflation factors (VIFs) for all independent and
control variables. For both regressions, the highest value for
VIFs was 1.9 which was much lower than 10, and the
average value of VIFs was 1.28 across all the variables. The
low value for VIFs revealed that multicollinearity does not
constitute a problem in our data analysis (Chatterjee et al.,
2000). The results show environmental uncertainty has a
positive impact on outdoor advertising budget allocation. In
contrast, environmental uncertainty has a negative impact
on in-store promotion budget allocation. The results showed
that environmental uncertainty plays an important role on
the advertising and promotion budget allocation decision;
Table 1
Regression of environmental uncertainty and control variables to budget
allocation
In-store promotion Outdoor advertising
New Zealand Portugal New Zealand Portugal
Environment uncertainty �0.023 �0.173* 0.026 0.187*
Chain stores 0.026 0.281* �0.067 0.213
Number of full-time
employees
�0.175* �0.091 �0.096 0.030
Shoe category 0.048 0.021 0.008 �0.013
Chow test 21.136** 7.428**
R2 0.031 0.102 0.016 0.095
F 1.675 3.363* 0.845 3.121*
Note: *p <0.05, **p <0.01, ***p <0.001; chain stores=six or more outlets
under one brand name.
K.-S. Fam, Z. Yang / Journal of Business Research 59 (2006) 259–267264
that is, the greater the environmental uncertainty, the more
budget will be allocated to outdoor advertising. However,
only the Portuguese results indicated a significant and
positive impact on outdoor advertising budgeting; this was
not the case for the New Zealand sample. Thus, hypothesis
2 is partially supported although the beta coefficient for the
New Zealand sample shows a positive but insignificant
direction. We further employed the Chow test to assess the
stability of the regression coefficients across the New
Zealand and Portugal samples. The results, as indicated in
Table 1, show that the relative strength of environmental
uncertainty in determining budget spending is significantly
greater for retailers in Portugal than for those in New
Zealand. Additionally, we examined the effects of three
control variables: chain stores (six or more stores under one
brand name), number of full-time employees, and shoe
category on budget allocations. The chain store and full-
time employee variables have a significant impact on in-
store promotion budget allocation in Portugal and New
Zealand, respectively. The shoe category has no significant
effect on the budget spending.
Table 2
Moderated regression analysis of the effect of environmental uncertainty on mark
New Zealand
Model 1 Model 2
Control variables
Chain stores 0.047 0.049
No. of full-time employees �0.104 �0.115
Shoe category 0.079 0.065
Independent variables
In-store promotion 0.107 0.073
Outdoor promotion 0.179* 0.141
Environment uncertainty �0.257*
Relevant interaction
In-store promotion�Environmental uncertainty
Outdoor advertising�Environmental uncertainty
R2 0.075 0.137
Adjusted R2 0.036 0.093
F-value 1.922* 3.094*
Incremental R2 0.062
F-value for incremental R2 0.947
Note: *p <0.05, **p <0.01, ***p <0.001; chain stores=six or more outlets under
6.3. Hypotheses 3 and 4
To test H3 and H4, the hierarchical moderated regression
analysis as recommended by Aiken and West (1991) was
employed. Market share change was used as the major
performance indicator. The initial model only included three
control variables and the budget spending on in-store
promotion and outdoor advertising as the independent
variables. Environmental uncertainty was added in the
second model. Finally, we imported the hypothesized
interactions in the third model. All constituent variables
were mean-centered before creating interaction terms to
eliminate multicollinearity (Aiken and West, 1991). Again,
we tested multicollinearity by computing the VIFs for each
independent and control variable. For each model, all the
values for VIFs were well below 10 and the mean value of
VIFs is smaller than 1, indicating that multicollinearity
would not create problems in the data analysis. The results
of Model 1 in Table 2 indicate that, for both the New
Zealand and Portugal samples, budget spending on outdoor
advertising has a significant positive effect on the market
share change. In comparison, budget spending on in-store
promotion has an insignificant, but positive impact on
market share change for the New Zealand sample, while the
Portuguese sample has an insignificant negative impact.
Thus, H3 is supported.
When environmental uncertainty was included as an
independent variable, a significant negative effect was noted
on market share changes for the New Zealand sample, while
the Portugal sample had an insignificant negative impact
(see Model 2 in Table 2). The effects on budget allocation
across in-store promotion and outdoor advertising on market
share varied slightly compared to those in Model 1. An
obvious change is the beta coefficient for outdoor advertis-
ing due to its having shifted from a significant positive to a
significant negative. Also, the addition of environmental
et share change
Portugal
Model 3 Model 1 Model 2 Model 3
0.075 �0.016 �0.019 �0.018
�0.157 �0.001 0.004 0.005
0.060 0.157** 0.151** 0.149**
0.110 �0.313*** �0.315*** �0.308***
0.056 0.270*** �0.269*** 0.264***
�0.254*** �0.094 �0.095
�0.129 0.018
0.218** �0.016
0.168 0.098 0.107 0.107
0.111 0.076 0.081 0.072
** 2.912*** 4.501 4.109*** 3.060***
0.031 0.009 0
1.254*** 7.277** 1.762
one brand name.
K.-S. Fam, Z. Yang / Journal of Business Research 59 (2006) 259–267 265
uncertainty significantly increases the R2 by 83%
(DF =0.947) in the New Zealand sample and by 9%
(DF =7.277, p <0.01) in the Portugal sample. The results
presented in Model 3 indicate that the introduction of the
interaction terms to the main effects model led to a
significant positive coefficient for outdoor advertising in
New Zealand, but an insignificant negative coefficient for
Portugal. For New Zealand, the R2 increases by 23%
(DF =1.254, p <0.01) for Model 3. No changes were
detected for the Portugal sample. Hence, H4 is partially
supported. That is, for New Zealand retailers, when the
environment uncertainty is increasing, spending more on
outdoor advertising and promotion is likely to improve their
market share.
7. Discussion
Our results revealed a number of points worthy of further
discussion. First, the study shows that retailers tended to
allocate more advertising and promotion budget to in-store
promotion relative to outdoor advertising in both New
Zealand and Portugal. This finding is consistent with earlier
studies indicating that, due to small budgets and lack of time
and expertise, most retailers would choose in-store promo-
tion over outdoor advertising. In-store promotion is much
easier to undertake compared to outdoor advertising. For in-
store promotion, all the retailers need to do is to vary the
promotional messages, change the discount value, or simply
re-mix the promotional items in the dump bins. In contrast,
planning is needed for outdoor advertising. One has to plan
as to what products are to be put on Fspecial sale_, when to
advertise, in which media, and how frequently. Fam (2003)
claims that in any promotion campaign the primary
marketing activity of most retailers is to move their
inventories rather than to undertake proper promotional
co-ordination and planning. Hence, in-store promotion
coupled with consumers’ tendency to make a purchase
decision while inside the store (Connolly and Davidson,
1996; Fam and Merrilees, 1998) become important strategic
factors in moving inventories. Other reasons for not using
outdoor advertising can be linked to small retailers having
skeletal support staffs and as a result limiting the time
personnel can dedicate to thinking about medium and long-
term competitiveness issues (Conant and White, 1999).
Despite the positive attitude towards in-store promotion,
our subsequent analyses showed some intriguing findings.
When retailers perceived that the environment was becom-
ing uncertain, they tended to allocate more promotion
budget to outdoor advertising. Why does this shift in
promotion strategy seem to surface under these circum-
stances? For a start, our sample consists of independent
retailers who probably are decision makers themselves.
Owner-managers are more likely to take personal risk with
their store’s performance compared to lower-level employ-
ees. Since they are at the forefront of the business, these
retailers most likely recognized the interdependency of their
actions with the environment. According to contingency
theory, any solution is situational rather than absolute, and
any solution may become inappropriate under different
environmental conditions (Gardner et al., 2000). In the case
of our sample, the retailers seemed to know what action to
undertake in an uncertain environment. In-store promotion
may often be the ideal promotional tool for small retailers;
but, when in an environment where the target market share
is becoming smaller, competitive and un-predictive, outdoor
advertising will be relied upon. The thrust of outdoor
advertising is to cast the net wider and therefore draw more
customers into the store, which will eventually lead to a
positive market share. This course of action is especially
important when the population is sparsely distributed as in
Portugal and New Zealand. For instance, the use of
community newspapers, magazines, radio, leaflets and
brochures has wider audience reach and, hence, the potential
to attract customers beyond the normal geographic area.
Robinson et al. (1986) found that operational planning
(i.e., action plans and daily operation procedures) undertaken
by small firms is strongly related to performance. In our
study, we found that environmental uncertainty led to a
negative market share. However, if the retailers switched to
outdoor advertising, a positive market share change was
recorded in the case of our New Zealand sample. For
Portugal, the findings showed a negative market share
change. We attribute the negative outcome to the promotion
structure in Portugal. Unlike in New Zealand, outdoor
advertising is the domain of Portuguese manufacturers
(Sabatina Report, 1997). Since retailers play a small role in
undertaking outdoor advertising, any perceived increase in
environmental uncertainty will most likely be countered by
re-juggling of the in-store promotional tools rather than
switching to outdoor advertising. Nonetheless, these findings
indicate that the small retailers tended to undertake lower-
level operational planning. In New Zealand, the constant
monitoring of the environment plus the retailers’ ability to
switch from in-store to outdoor advertising derived more
benefits than preparing a formal written strategic plan. For the
Portuguese retailers, the inherent capability of in-store
promotion limits market share growth, but this does not
mean that the Portuguese retailers did not undertake opera-
tional planning.
Although we deliberately targeted the clothing and shoe
retailers, as they tend to restrict their lines of merchandise
and hence guarantee some assurances of uniformity of
merchandise among the outlets, our results were mixed; that
is, a positive relationship between planning and perform-
ance for New Zealand and a negative relationship between
planning and performance for Portugal. One possible
explanation for these inconsistent findings may be that the
Portuguese retailers’ inability and/or reluctance to undertake
outdoor advertising. Another possible explanation may be
that the Portuguese retailers did not perceive the environ-
ment as uncertain as their New Zealand counterparts, and,
K.-S. Fam, Z. Yang / Journal of Business Research 59 (2006) 259–267266
hence, the formers’ reaction is less aggressive. A further
explanation may be that the thought of switching over to
outdoor advertising requires planning initiatives, like the
products to put on offer, discounting, accurate sense of
targeting customer needs, knowledge of competitors, and so
on, may not lead to better financial performance.
8. Limitations and future research
This study has concentrated on one particular industry,
namely small and independent clothing and shoe retailers in
two advanced countries, but with variations in population
size and GDP growth. The behaviours of large firms warrant
further investigation. In addition, future research should
compare Flike with like_; that is, two or more economically
advanced countries together or two heavily populated
countries together. Next, our approach to gauging the
promotion budget was percentage of spending per promotion
tool relative to personal selling. Although this method
eliminates the variations in labour costs between the two
target countries and sensitivity of providing raw sales and
profit data from the retailers’ point of view, such an approach
lacks the credibility of the widely used Fpercentage of sales_method in budget allocation. Future research in this area
should perhaps use this percentage of sales method of
budgeting to ensure reliability and credibility of study. The
use of market share in our study was again an attempt to
circumvent the sensitivity of getting the retailers to reveal
their annual sales turnover and/or profit. We agree that the
market share estimation method might not be sufficient and
there is a need to use a triangulated approach like combining
market share with profitability and ROI for performance
measure. The relatively low R2 values suggest that, in
addition to perceived environmental uncertainty, future
research should also include variables like nature of busi-
ness, location of business, and market size, to name a few,
that might influence promotion budget allocation. The last
limitation is that the study was conducted in two economies
with strong growth and low inflation, and the findings may
be different if these economies are undergoing stagflation.
This may be an area for future research.
9. Conclusion
This study provides insight into the planning ability of
small retailers faced with an uncertain environment. The
study reveals that small retailers are more inclined to
undertake lower-level operational planning like switching
from in-store promotion to outdoor advertising when they
sense a change in environment. The result of this switch-
over is a positive change in market share. Interestingly, our
findings are consistent with earlier similar studies of the
environment–strategy–performance paradigm. However, as
with any research of this kind, we must call for further
studies of this type to enable comparison of results in other
industries and national contexts.
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